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The authors develop and validate a conditional multiplier approach for valuing branded businesses. The approach enhances traditional multiplier-based valuation by explicitly incorporating brand characteristics into the model. The authors present theoretical arguments why, develop a model to demonstrate how, and provide an empirical illustration to show that brand assets are not fully reflected in contemporaneous margins, and therefore valuation accuracy can be improved by incorporating information about the properties of the firm's brand asset directly into a valuation framework. The authors find that brand metrics have statistically significant associations with valuation multipliers and add incremental explanatory power to accounting variables in explaining valuation multipliers. Out-of-sample analysis shows a 16% improvement in the mean absolute error for predictions that take into account brand metrics compared with predictions based on accounting variables alone.

Firms allocate their limited resources between two fundamental processes of creating value (i.e., innovating, producing, and delivering products to the market) and appropriating value (i.e., extracting profits in the marketplace). Although both value creation and value appropriation are required for achieving sustained competitive advantage, a firm has significant latitude in deciding the extent to which it emphasizes one over the other. What effect does strategic emphasis (i.e., emphasis on value creation versus value appropriation) have on firm's financial performance? The authors address this issue by examining the effect that shifts in strategic emphasis have on stock return. They find that the stock market reacts favorably when a firm increases its emphasis on value appropriation relative to value creation. This effect, however, is moderated by firm and industry characteristics, in particular, financial performance, the past level of strategic emphasis of the firm, and the technological environment in which the firm operates. These results do not negate the importance of value creation capabilities, but rather highlight the importance of isolating mechanisms that enable the firm to appropriate some of the value it has created.